fox v. dish networks - santa clara university

Exhibit 1

Case 2:12-cv-04529-DMG-SH Document 114-1 Filed 11/12/12 of 34 Page ID #:3457

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8 UNITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORNIA

FOX BROADCASTING COMPANY Case No. CV 12-04529 DMG (SHx)

INC., TWENTIETH CENTURY FOX ORDER RE PLAINTIFFS' MOTION FOR PRELIMINARY INJUNCTION

FILM CORP., and FOX TELEVISION

HOLDINGS, INC.,

Plaintiffs, PROPOSED PUBLIC VERSION

v.

DISH NETWORK, L.C.C. and

DISH NETWORK CORP.,

Defendants.

This matter is before the Court on Plaintiffs' Motion for Preliminary Injunction

[Doc. #41]. Defendants filed an opposition to the Motion on September 4, 2012 [Doc.

#71]. Plaintiffs filed their reply on September 7, 2012 [Doc. # 79]. The Court held a

hearing on the Motion on September 21, 2012 and, thereafter, took the matter under

submission.

The parties ask this Court to fast-forward Sony Corp. of America v. Universal City

Studios, Inc., 464 U.S. 417, 104 S. Ct. 774, 78 L. Ed. 2d 574 (1984), to consider whether

"PrimeTime Anytime" and "Auto Hop" are merely technological innovations as

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Exhibit 1 - Page 3


innocuous as the Betamax video tape recorder ("VCR") of yore or are instruments of

infringement causing Defendants to suffer irreparable harm. On the current record,

Plaintiffs have not borne their burden of showing that the technologies at issue are the

latter such that a preliminary injunction is warranted. For the reasons set forth below,

Plaintiff's Motion is DENIED.

I. FACTUAL AND PROCEDURAL BACKGROUND

Plaintiffs, Fox Broadcasting Company, Inc., Twentieth Century Fox Film Corp.,

and Fox Television Holdings, Inc. ("Fox"), own the copyrights to the television programs

that air on the Fox Network during the primetime window each night, including Glee,

The Simpsons, Family Guy, Touch, and Bones ("the Fox Programs"). See Declaration of

Sherry Brennan, l[rl[r 2-3, Exh. A [Doc. # 41-121.' Fox is one of four network broadcasting

companies that offers television programming over the airwaves by local television

stations free of charge to viewers. Id. at In 4, 8. Fox also enters into Retransmission

Dish submitted abundant objections to nearly every piece of evidence filed by Fox [Doc. #65]. "[1]n the preliminary injunction context, the Court is not strictly bound by all rules of evidence." Ticketmaster L.L.C. v. RIVIG Technologies, 507 F. Supp. 2d 1096, 1102 n.2 (CD. Cal. 2007) (citing Flynt Distributing Co., Inc. v. Harvey, 734 F.2d 1389, 1394 (9th Cir. 1984)). The Court has considered Dish's evidentiary objections and will address them where necessary. See also Rosen Entm 't Sys., LP v. Icon Enters, Inc., 359 F. Supp. 2d 902, 904 (C.D. Cal. 2005) (exercising discretion to consider inadmissible but reliable evidence in the context of a preliminary injunction). Dish objects to Exhibit A of the Brennan Declaration for lack of personal knowledge (Fed. R. Evid. 602) and lack of proper authentication (Fed. R. Evid. 901). The objections are DENIED because Brennan, as Fox's Senior Vice President of Distribution and Development, is an adequate custodian of Fox's records of copyright ownership. Moreover, given that the parties do not seriously dispute Fox's ownership of the copyrights of the Fox Programs, the Court is satisfied that Exhibit A to Brennan's declaration, which contains copies of Certificates of Registration for a sampling of Fox program scripts, is reliable to establish Fox's copyright ownership for purposes of the present motion. See Twin Peaks Prod'ns, Inc. v. Publications Intl, 996 F.2d 1366, 1371 (2d Cir. 1993) (finding that the court's disposition of copyright issues regarding popular television show Twin Peaks was "ultimately unaffected" by whether the copyright registrations applied to the program's teleplays, televised episodes, or both); Reply at 7 (Fox could not obtain copyright registration of programs as audiovisual works until after they aired, so it obtained registration of the scripts). Given Brennan's background and position with Fox, she is also qualified to discuss Fox's contractual relationships with other companies in the television market and the market for Fox's programs.

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Exhibit 1 - Page 4


Consent ("RTC") contracts with multichannel video programming distributors

("MVPDs"), such as cable, telco, and satellite television providers, which grant the

MVPDs a license to retransmit the Fox broadcast to consumers through their own

systems. See Brennan Decl., ¶ 12. Some of Fox's RTC contracts also grant MVPDs

access to video-on-demand ("VOD") programs selected by Fox. Id. at ¶ 14. In addition,

Fox enters into separate licensing agreements with companies like Hulu, Apple, Netflix,

and Amazon that allow consumers to view Fox programs via Internet streaming on their

computers and mobile devices, either with or without commercials depending on the

nature of the licensing agreement and the user's subscription. Id.

Defendants, Dish Network L.L.C. and Dish Network Corp. ("Dish"), are the third

largest pay-television service provider in the United States. Declaration of David Shull,

¶ 2 [Doc. # 61]. Dish provides satellite cable services to over 14 million American

households. Declaration of Vivek Khemkha, ¶ 8 [Doc. # 62]. Dish retransmits the Fox

broadcast to its subscribers via satellite pursuant to an RTC Agreement with Fox. See

Shull Decl., ¶ 11, Exh. 3. Since 1999, Dish has also offered subscribers Digital Video

Recording ("DVR"), which "allows a subscriber to digitally record television content for

watching at a later time, which is commonly known as 'time-shifting.' Declaration of

Dan Minnick, 11 5, 8 [Doc. # 59].

A. The RTC Agreement and the 2010 Letter Agreement

Dish's right to retransmit the Fox broadcast is governed by the RTC Agreement,

which Fox entered into in 2002 with EchoStar Satellite Corporation, Dish's former parent

company and current technology provider. See Shull Decl., ¶ 11, Exh. 3. For a

substantial fee, the RTC Agreement grants Dish a non-exclusive right to retransmit the

Fox broadcast to its subscribers. Id. at ¶ 2. Dish's rights under the RTC Agreement are

limited in several ways. First, the RTC Agreement states that Dish

shall have no right to distribute all or any portion of the programming

contained in any Analog Signal on an interactive, time-delayed, video-on-

demand or similar basis; provided that Fox acknowledges that the foregoing

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1 shall not restrict [Dish's] practice of connecting its Subscribers' video replay

2 equipment . .

3 Id. at ¶ 3(d) (emphasis in original). Second, the RTC Agreement provides that Dish may

4 not, "for pay or otherwise, record, copy, duplicate and/or authorize the recording,

5 copying, duplication (other than by consumers for private home use) or retransmission of

6 any portion of any Station's Analog Signal without prior written consent of the Station,

7 except as is specifically permitted by this agreement." Id. at ¶ 9(a).

8 The parties have amended and supplemented their agreement several times since

9 2002 to account for developing technologies and changes in the television market. See

10 Declaration of Michael Biard, ¶ 18 [Doc. # 41-15].2 Most recently, their 2010 Letter

11 Agreement addresses, among other things, the parties' rights and obligations with respect

12 to VOD offerings. Shull Decl., ¶ 14, Exh. 5. The 2010 Letter Agreement states, "In all

13 cases VOD content shall be made available by DISH solely to DISH subscribers of the

14 corresponding linear service," and it lists four specific types of VOD programming. Id.,

15 Attach. A, ¶ 9. Each VOD sub-clause contains a term requiring Dish to "disable fast-

16 forward functionality during all advertisements." Id. In particular, the 2010 Letter

17 Agreement gives Dish the ability to offer "Fox VOD" to subscribers at no additional

18 licensing fee, which would allow users to watch primetime programming in a VOD

19 format. Id. This term contains the added proviso that "Dish acknowledges and agrees

20 that . . fast-forward disabling is a necessary condition to distribution of the Fox

21 broadcast content via VOD." Id. According to David Shull, Dish Senior Vice President

22 of Programming, Dish "has not been able to" make Fox VOD available to its subscribers

23 for largely technical reasons unrelated to the subjects of this litigation. See Shull Decl.,

24 '1123-24.

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26 2 Dish objects to this statement based on the doctrine of completeness. The complete 2004

27 agreement and 2010 Letter Agreement appear in the record at Shull Decl., TT 13-14, Exhs. 4, 5. The Court is satisfied that Biard, as Fox Executive Vice President of Distribution and a signator to the 2010

28 Letter Agreement, is qualified to make a statement as to the agreement's purpose.

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Exhibit 1 - Page 6


B. The Hopper, PrimeTime Anytime, and AutoHop

In January 2012, Dish announced the Hopper Whole Home High Definition Digital

Video Recorder ("the Hopper") to its subscribers. Minnick Decl., ¶ 13. The Hopper is a

set-top box ("STB") with both DVR and VOD capabilities. Id. at 11114, 51. The Hopper

is currently only available for consumer use, but it is unique in that subscribers may use

up to three "Joeys," or additional boxes, to access programs saved on the Hopper on

additional televisions in their homes. Id. at ¶ 14. The Hopper also works with the "Sling

Adapter," which allows subscribers to view Hopper content on their computers and

mobile devices via the Internet. Id. at ¶ 83. The Hopper arrived on the market for

consumers in March 2012 and, as of August 2012, 11111111111111111111.1111111.1

ut of a total of

approximately 13.5 million Dish accounts that use STBs. Id. at ¶¶ 8-9.

Because the Hopper was designed to service multiple televisions, it has three

tuners and a two-terabyte hard drive, which together allow the user to record and save

more programming at any given time. Minnick Decl., ¶ 16. The three tuners permit

Hopper users to watch or record on three different television stations at once. Id. The

Hopper has the additional unique capability of streaming all four of the major television

networks on a single satellite transponder, which allows a user to watch or record all four

network broadcasts while leaving the other two tuners available for recording non-

network programs or watching them on other television sets equipped with a Joey. Id. at

17.

In January 2012, Dish also announced a feature called "PrimeTime Anytime"

("PTAT"), which became available to Hopper subscribers in March 2012.3 Shull Decl.,

¶ 9. PTAT allows subscribers to set a single timer on the Hopper to record all primetime

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Exhibit 1 - Page 7


programming on any of the four major broadcast networks, including Fox, each night of

the week.4 Minnick Decl., ¶ 20. Dish determines the start- and end-time of the

primetime block each night and, for certain types of programming, may alter the total

length of the PTAT recordings Id. at ¶ 31. In order to use PTAT, the user must enable it

from the main menu by clicking "*" on his or her remote control.6 Id. at ¶ 22. The user

is led to a set-up screen, where he or she must select "Enable" to activate PTAT. Id. at

¶ 23. Once PTAT is enabled, a new screen appears, and the user may choose to disable

recordings of certain networks on certain days of the week. Id. If the user does not select

otherwise, the default settings cause the Hopper to record the entire primetime window

on all four of the major networks, including Fox, every day of the week.? Id. at ¶ 24. A

user may begin watching the recorded programs immediately after PTAT starts

recording. Minnick Decl., ¶ 28. The user may cancel a particular PTAT recording on a

given day until 20 minutes before the primetime programming begins; at that time, the

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4 The Hopper is oni able to record all four network broadcasts throu h the same trans onder durin .rime time hours.

5 For example, during the Olympics in July and August 2012, Dish altered the PTAT start- and end-times to accommodate certain Olympics programming on NBC. Minnick Depo., 217:11-21. Additionally, Dish designates as primetime any program at least 50% of which falls within the prime time window, and that program is then included in that network's PTAT recording for that evening. Id. at 216:10-18.

6 The parties devote much argument to the significance of a series of changes to the Hopper features that took place on July 20, 2012, including certain default settings. See Demery v. Arpaio, 378 F.3d 1020, 1025-26 (9th Cir. 2004) ("Although a suit for injunctive relief is normally moot upon the termination of the conduct at issue, such a claim is not moot if there is a likelihood of recurrence."). The Court has considered these arguments, but for purposes of the Motion, the Court need only examine the propriety of the Hopper features in their current form, as Dish has stated that it has no plans to return to its pre-July 20, 2012 practices. Minnick Decl., ¶ 47. See Polymer Technologies, Inc. v. Bridwell, 103 F.3d 970, 974 (Fed. Cir. 1996) (noting that, in an infringement action, a preliminary injunction is unnecessary where "the non-movant has or will soon cease the allegedly infringing activities").

7 Dish considers Primetime to include programs aired between 8 p.m. and 11 p.m. Monday through Saturday, and between 7 p.m. and 11 p.m. on Sunday, for the coastal television markets. Minnick Decl., ¶ 26. Primetime airs one hour earlier in the Central and Mountain time zones. Id.

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1 user can no longer cancel the recording for that day but must instead delete it after it is

2 completed. Declaration of David R. Singer, ¶ 45, Exh. L, Deposition of Dan Minnick,

3 224:19-225:14 ("Minnick Depo.") [Doc. # 5518 According to Minnick, Vice President of

4 Software Engineering for EchoStar Technologies, Dish's technology vendor, the decision

5 to limit users' recording ability in this manner was based on "usability": because

6 cancelling a recording could result in the user inadvertently cancelling an entire night of

7 recordings rather than just one program, Dish reasoned that the anti-cancel feature would

8 improve users' experience by protecting against accidental cancellations. Id. at 193:14-

9 194:13.

10 All PTAT recordings are stored locally on the Hopper in users' homes, and users

11 may access PTAT-recorded shows from a special "PTAT" folder in the "Graphical User

12 Interface" ("GUI").9 Minnick Decl., ¶ 28. Programs recorded manually by the user via

13 DVR are stored in a separate folder called "My Recordings." Id. at ¶ 29. The user may

14 select how many days he or she wants to save the PTAT recordings before they are

15 automatically deleted. Minnick Decl., ¶ 24. Unless the user selects otherwise, PTAT

16 recordings are automatically deleted after eight days. Id. at ¶ 24. During that period, the

17 PTAT recordings are "protected," so they are not subject to automatic deletion for lack of

18 space as are other DVR recordings stored in the "My Recordings" folder. Id. at ¶ 33. If a

19 user wishes to "delete" a PTAT recording earlier than the pre-selected date, the icon for

20 that recording will no longer appear in the PTAT folder and will be unavailable for

21 playback; however, the actual recording will remain on the Hopper hard drive until the

22 pre-selected deletion date. Id. at 35. Similarly, if a user wishes to save a particular

23 program for more than eight days, he or she may elect to save a duplicate copy of that

24 program in the "My Recordings" folder. Id. at ¶ 34. The duplicate copy is not actually

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26 8 On August 7, 2011, Fox deposed Minnick, who appeared on behalf of Dish pursuant to Fed. R.

27 Civ. P. 30(b)(6). See Declaration of David R. Singer, ¶ 45, Exh. L [Doc. #41-2].

9 From the user's perspective, a GUI functions like a menu page, where the user can select what 28 1 he or she wants to do by selecting the corresponding icon. See Minnick Decl., ¶ 28 n.1.



1 created until the time for automatic deletion; until then, the icon for the program in the

2 "My Recordings" folder is merely a link to the original PTAT recording. Id.

3 Although the Hopper has three "partitions," or areas of the hard drive where data

4 can be stored, all of the audio-visual recordings, both PTAT and traditional DVR, are

5 stored in the same partition. Id. at ¶¶ 43-45. If a user enables PTAT, the programs take

6 up the remaining memory space as they are recorded until it becomes necessary to delete

7 previously recorded programs. Minnick Depo., 170:21-172:10. At that point, the Hopper

8 deletes previously recorded programs in the same manner that a traditional DVR would

9 to make room for the new PTAT recordings. Id. According to Minnick, prior to July 20,

10 2012, Dish "reserved" 231 gigabytes of memory for the PTAT recordings, so the user

11 could never use any portion of that memory for other DVR recordings. Id. at 172:20-6.

12 After July 20, 2012, PTAT no longer receives this preferential memory treatment. Id. at

13 172:5-8. The same partition also contains 329 gigabytes of "reserved" space for "File-

14 Based Video-On-Demand," which consists of pay-per-view movies, selected by Dish,

15 which Dish anticipates the user might want to order and watch. Minnick Decl., ¶ 51.

16 In May 2012, Dish announced the AutoHop, an additional feature that allows users

17 to "skip" commercials in PTAT recordings with the click of their remote control. See

18 Shull Decl., ¶ 10. If AutoHop is available for a particular PTAT program, the user has

19 the option to enable it for that show. Minnick Depo., 49:18-23. If the user enables

20 AutoHop, the Hopper automatically skips commercial breaks during that program.

21 Minnick Decl., ¶ 54. Although the user may see the first few seconds and last few

22 seconds of the commercial break, the bulk of the commercials are replaced by a kangaroo

23 icon telling the user that the AutoHop is skipping the commercials. Id. AutoHop is

24 available only for PTAT recordings, but users can use the standard "30-second skip"

25 feature on other DVR recordings to fast-forward. Id. at ¶ 58.

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These copies

remain at the uplink facility and are used for quality assurance ("QA") only. Id. at 38:16-

17. A technician views the recording, fast-forwarding through the program itself to the

commercial breaks, to ensure that the marking announcement is accurate and no portion

of the program is cut-off. Id. at 47:12-49:22. If the QA copies reveal an error in the

marking process, technicians can correct the error on a later broadcast to ensure that

AutoHop functions properly for users who enable it. Id. at 50:1-10. If there is not

enough time to correct a marking error before the last broadcast ends, then AutoHop will

not be available for that particular show. Id. at 50:12-14. Unlike PTAT, AutoHop does

not become available to the user until 3:00 A.M. Eastern Standard Time. Id. at 52:22-23.

On May 24, 2012, Fox filed a Complaint against Dish in this Court alleging that

PTAT and AutoHop infringe on Fox's copyrights and constitute a breach of the RTC

Agreement and the 2010 Letter Agreement [Doc. #1]. Fox filed a motion for a

preliminary injunction to enjoin Dish from operating, distributing, selling, or offering to

sell any version of PTAT or AutoHop or any comparable features [Doc. #41].

II.

LEGAL STANDARD

Federal Rule of Civil Procedure 65 governs the issuance of preliminary

injunctions. The purpose of such injunctive relief is to preserve the rights and relative

positions of the parties, i.e., the status quo, until a final judgment issues. See US. Philips

Corp. v. KBC Bank N. V., 590 F.3d 1091, 1094 (9th Cir. 2010) (citing Univ. of Tex. v.

Camenisch, 451 U.S. 390, 395, 101 S. Ct. 1830, 68 L. Ed. 2d 175 (1981)). An injunction

is an exercise of a court's equitable authority, which should not be invoked as a matter of

course, and "only after taking into account all of the circumstances that bear on the need

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Exhibit 1 - Page 11


for prospective relief." Salazar v. Buono, U.S. , 130 S. Ct. 1803, 1816, 176 L. Ed.

2d 634 (2010).

A plaintiff seeking injunctive relief must show that (1) it is likely to succeed on the

merits; (2) it is likely to suffer irreparable harm in the absence of preliminary relief; (3)

the balance of equities tips in its favor; and (4) that an injunction is in the public interest.

Toyo Tire Holdings of Ams. Inc. v. Cont'l Tire N. Am., Inc., 609 F.3d 975, 982 (9th Cir.

2010) (citing Winter v. Natural Res. Def. Council, Inc., 55 U.S. 7, 20, 129 S. Ct. 365,

374, 172 L. Ed. 2d 249 (2008)). An injunction may also be appropriate when a plaintiff

raises "serious questions going to the merits" and demonstrates that "the balance of

hardships tips sharply in the plaintiff's favor." Alliance for the Wild Rockies v. Cottrell,

632 F.3d 1127, 1135 (9th Cir. 2010) (quoting The Lands Council v. McNair, 537 F.3d

981, 987 (9th Cir. 2008)).

III.

DISCUSSION

A. Likelihood of Success on the Merits

Fox contends that it is likely to succeed on the merits of its claims against Dish for

breach of contract, direct copyright infringement, and derivative copyright

infringement.10 At the outset, the Court notes that the parties' relationship is primarily a

contractual one, governed by the RTC Agreement and the 2010 Letter Agreement. "A

licensee infringes the owner's copyright if its use exceeds the scope of its license."

Adobe Sys. Inc. v. One Stop Micro, Inc., 84 F. Supp. 2d 1086, 1092 (N.D. Cal. 2000)

(quoting S.O.S., Inc. v. Payday, Inc., 886 F.2d 1081, 1088 (9th Cir. 1989)). Indeed, Fox's

contract claims overlap substantially with the issues raised by its copyright claims, and

therefore a breach of contractual terms governing Dish's rights to use the copyrighted

io Fox's Complaint also raises a claim for breach of contract involving Dish's Sling Adapter, as well as a claim for breach of the implied covenant of good faith and fair dealing. See Complaint, TT 80, 82-85. Notwithstanding these alternative theories of liability, the Court focuses its present analysis solely on the issues briefed by the parties on this Motion.

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works also constitutes infringement. See Sun Microsystems, Inc. v. Microsoft Corp., 81

F. Supp. 2d 1026, 1031 (N.D. Cal. 2000). Nevertheless, due to the unique juxtaposition

of the contract and copyright claims in this motion for preliminary injunction and the

importance of the Sony case to the Court's analysis, the Court will examine PTAT and

AutoHop through the lens of copyright law before proceeding to the contract claims.

1. The Derivative Copyright Infringement Claims

Fox contends that Dish induces, contributes to, or is vicariously liable for the

infringing acts of its subscribers. "One infringes contributorily by intentionally inducing

or encouraging direct infringement, and infringes vicariously by profiting from direct

infringement while declining to exercise a right to stop or limit it." Metro-Goldwyn-

Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913, 930, 125 S. Ct. 2764, 2776, 162 L.

Ed. 2d 781 (2005). To establish liability on a derivative-infringement theory, then, Fox

must first establish that "there has been a direct infringement by third parties." See

Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1169 (9th Cir. 2007) (citing A&M

Records, Inc. v. Napster, 239 F.3d 1004, 1013 n.2 (9th Cir. 2001)). Absent a third-party

act of infringement, a defendant cannot be liable for derivative infringement. Id.

The Court's analysis of Fox's derivative claim is guided by the United States

Supreme Court's seminal decision in Sony. In Sony, owners of television and film

copyrights brought derivative—not direct—infringement claims against Sony following

its release of the Betamax VCR. 464 U.S. at 420. The copyright owners alleged that

individual consumers' use of the VCR to record their works from broadcast television

constituted direct copyright infringement and rendered Sony liable under a derivative

infringement theory. Id. The Supreme Court rejected the plaintiffs' claims. Id. at 456.

The Court noted that secondary liability was appropriate only if the defendants had "sold

equipment with constructive knowledge of the fact that their customers may use that

equipment to make unauthorized copies of copyrighted material." Id. at 439. The Court

noted that "the sale of copying equipment . . . does not constitute contributory

infringement if the product is widely used for legitimate, unobjectionable purposes." Id.

Exhibit 1 - Page 13


1 at 789. The vast majority of VCR users made copies for private time-shifting purposes,

2 and there was no evidence that this practice decreased television viewing or adversely

3 impacted the value of the copyrighted works. Id. at 423-24, 454-55. The Court

4 concluded that the VCR's primary application—time-shifting for private home use—was

5 a fair use and therefore Sony was not liable for derivative infringement. Id. at 454-56.

6 Importantly, Sony addressed only derivative claims; the plaintiffs in that case did not

7 claim that Sony directly infringed any of their exclusive rights. See id. at 434.

8 Here, the parties agree that the Hopper is only available to private consumers and

9 the evidence does not suggest that consumers use the PTAT copies for anything other

10 than time-shifting in their homes or on mobile devices. In fact, Fox has identified no

11 specific theory under which individual PTAT users could themselves be liable for

12 copyright infringement without circumventing Sony. In the absence of any evidence of

13 such direct infringement on the part of PTAT users, Dish cannot be responsible for

14 "intentionally inducing or encouraging direct infringement," or for "profiting from direct

15 infringement while declining to exercise a right to stop or limit it." Grokster, 545 U.S. at

16 930. In Grokster, unlike this case, owners of a peer-to-peer file-sharing program were

17 liable for derivative copyright infringement because they knowingly and intentionally

18 induced users to copy and distribute copyrighted works over the network, which

19 indisputably constituted infringement on the part of the users. Id. at 939-41. Here, the

20 record is devoid of any facts suggesting direct infringement by PTAT users. Fox has

21 therefore failed to establish a likelihood of success or to raise serious questions on the

22 merits of its derivative infringement claims.

23 2. The Direct Copyright Infringement Claims

24 Having determined that Dish cannot be liable for infringement on a derivative

25 theory, the Court turns next to Fox's direct infringement claims. To establish a claim for

26 copyright infringement, Fox must demonstrate (1) ownership of a valid copyright and (2)

27 infringement of one of the exclusive rights granted to copyright holders under 17 U.S.C.

28 § 106. See Perfect 10, Inc., 508 F.3d at 1159 (quoting Napster, 239 F.3d at 1013). Direct



infringement does not require intent or any particular state of mind. Religious Tech. Ctr.

v. Netcom On-Line Commc'n Servs., 907 F. Supp. 1361, 1367 (N.D. Cal. 1995)

("Netcom"). At issue here are the exclusive rights of reproduction and distribution. See

17 U.S.C. §§ 106(1), (3).

a. The Reproduction Right

To establish infringement by reproduction, the plaintiff must show (1) ownership

of the copyright and (2) a copying by the defendant. See Kelly v. Arriba Soft Corp., 336

F.3d 811, 817 (9th Cir. 2002). A plaintiff need not demonstrate the defendant's intent to

infringe the copyright to establish infringement, UMG Recordings, Inc. v. Disco Azteca

Distributors, Inc., 446 F. Supp. 2d 1164, 1172 (ED. Cal. 2006), but it must establish that

the defendant "actively engage[s]" in the copying, Perfect 10, Inc. v. Cybernet Ventures,

Inc., 213 F. Supp. 2d 1146, 1168 (C.D. Cal. 2002). Here, Fox has established ownership

in at least some of the copyrighted programs by submitting copyright registrations for the

scripts of sixteen episodes of programs that air in Fox's primetime window. See Brennan

Decl., ¶ 3, Exh. A. Moreover, Dish concedes that copies of the Fox Programs are made

in furtherance of both PTAT and AutoHop.

i. The PTAT Copies

First, when enabled, PTAT makes copies of the Fox primetime broadcast each

night. Dish asserts that the user, not Dish itself, is responsible for these copies just as the

user of a VCR or traditional DVR is responsible for the copies he makes at home on his

personal machine. If this is true, then Dish cannot be liable for direct infringement. See

Sony, 464 U.S. at 455; Netcom, 907 F. Supp. 1361, 1372 (N.D. Cal. 1995). If this is not

true, and Dish in fact makes the copies, then the copies are infringing unless they are

subject to an exception. See Hustler Magazine, Inc. v. Moral Majority, Inc., 796 F.2d

1148, 1151 (9th Cir. 1986). Thus, the Court turns to the threshold question: Who makes

the copies?

In Netcom, a disgruntled former member of the Church of Scientology posted

portions of the church's copyrighted works on an online forum to which he gained access

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through Netcom, then a large Internet access provider in the United States. 907 F. Supp.

at 1366. The messages were stored on the online forum operator's computer,

automatically copied onto Netcom's computer, and then distributed to users' computers.

Id. at 1367. Netcom did not monitor or control the content or postings, although it could

have done so. Id. at 1368. Finding that Netcom was not liable for direct infringement of

the church's copyrights, the court stated, lallthough copyright is a strict liability statute,

there should still be some element of volition or causation which is lacking where a

defendant's system is merely used to create a copy by a third party." Id. at 1370. The

court analogized to a copying machine, reasoning that Netcom's act of designing a

system that allows users to copy materials "is not unlike that of the owner of a copying

machine who lets the public make copies with it." Id. at 1369. The owner, reasoned the

Court, does not infringe by merely making his machine available, even though some of

his customers use it for infringing purposes. Id. The court concluded that, while it was

clear that the former church member engaged in infringement, Netcom's involvement in

the copying by acting as a conduit did not expose it to direct liability. Id. at 1372.

Importantly, the Netcom court found that Netcom was subject to the "usual strict

liability scheme that exists for copyright," but it acknowledged that the unique

characteristics of the technology at issue required deeper inquiry into who caused the

copies to be made. See id. at 1369 n.12. Several courts have adopted this causation test

to determine whether various types of Internet service providers and computer programs

are directly liable for infringing activities carried out on their systems or programs. See,

e.g., CoStar Group v. LoopNet, Inc., 373 F.3d 544, 550 (4th Cir. 2004) (Internet service

provider not directly liable for providing system by which users could upload some

copyrighted photographs to its website); Field v. Google, 412 F. Supp. 2d 1106, 1115

(D. Nev. 2006) (Internet search engine not directly liable for automatic copying made

during the engine's "caching" process); Perfect 10, Inc. v. Cybernet Ventures, Inc., 213 F.

Supp. 2d at 1168-69 (Internet age-verification website not directly liable where affiliate

websites engaged in infringement); Sega Enters. Ltd. v. MAPHIA, 948 F. Supp. 923, 932

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(N.D. Cal. 1996) (electronic bulletin-board operator not directly liable where users made

infringing copies by uploading to or downloading from the bulletin board). In LoopNet,

the Fourth Circuit read Netcom as setting forth the rule that, in cases where the identity of

the copier is at issue, there must be "a nexus sufficiently close and causal to the illegal

copying" to conclude that the owner of a machine used by others for illegal copying

directly infringes. LoopNet, 373 F.3d at 550.

Most recently, the Second Circuit applied this causation test to a "remote-storage

DVR system" ("RS-DVR") that allowed customers to record cable programming on

central hard drives housed and maintained remotely by the defendant, Cablevision.

Cartoon Network LP, LLLP v. CSC Holdings, Inc., 536 F.3d 121, 124 (2d Cir. 2008)

("Cablevision"). In simple terms, users could request that a particular program be

recorded, and Cablevision's system created a data store that the user could access later to

view the requested program at home. Id. at 124-25. Cablevision's service, according to

the court, bore similarities to both VOD and DVR. Id. at 125 ("RS-DVR . . . closely

resembles a VOD service, whereby a cable subscriber uses his remote and cable box to

request transmission of content, such as a movie, stored on computers at the cable

company's facility. But unlike a VOD service, RS-DVR users can only play content that

they previously requested to be recorded."). The court also noted that Cablevision

maintained some control over the content available for recording, because customers

could "only record programs on the channels offered by Cablevision," and because

Cablevision could "modify the system to limit the number of channels available and

considered doing so." Id.

Acknowledging that Cablevision's system undoubtedly resulted in copies being

made, the court began its analysis with this inquiry: "The question is who made this

copy. If it is Cablevision, plaintiffs' theory of direct infringement succeeds; if it is the

customer, plaintiffs' theory fails because Cablevision would then face, at most, secondary

liability." Cablevision, 536 F.3d at 130 (emphasis in original). Relying on Netcom, the

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court looked to "the volitional conduct that causes the copy to be made." Id. at 131. To

make this determination, the court noted that

a significant difference exists between making a request to a human

employee, who then volitionally operates the copying system to make the

copy, and issuing a command directly to a system, which automatically

obeys commands and engages in no volitional conduct.

Id. at 131. The latter is similar to the proprietor of a copy shop, who does not infringe by

merely making his copy machines available to the public for private, perhaps infringing,

copying. Id. at 132 (citing Princeton Univ. Press v. Mich. Document Servs., 99 F. 3d

1381, 1384 (6th Cir. 1996)). The court analogized its own inquiry to the doctrine of

causation-based liability in tort, which places liability on the actor "whose 'conduct has

been so significant and important a cause that [he or she] should be legally responsible.'"

Id. at 132 (quoting W. Page Keeton et al., Prosser and Keeton on Torts § 42 at 273 (5th

ed. 1984)).

The court concluded that Cablevision was not directly liable for copyright

infringement because its involvement in the copying did not pass this causation-based

test. Cablevision, 536 F.3d at 132. In doing so, it found that Cablevision's "continuing

relationship" with its customers, its control over recordable content, and its development

of the instrumentality used for copying was secondary to the fact that the user, and not

Cablevision, actually initiated the copies. Id.

In this case, Fox asks this Court to find that, through PTAT, Dish crosses the

direct-infringement line that Cablevision's RS-DVR merely approached. See

Cablevision, 536 F.3d at 133. Fox draws the Court's attention to several characteristics

of PTAT that it contends accord Dish an impermissible degree of control over the

copying process, rendering Dish the copier. The Court examines each of these PTAT

features in turn.

First, Dish decides which networks are available on PTAT and has defaulted the

PTAT settings to record all four networks. See Minnick Dec1.11 24. These decisions,

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while undoubtedly discretionary authority that Dish maintains, are similar to

Cablevision's "unfettered discretion" in selecting the programming available for

recording. See Cablevision, 536 F.3d at 132 (internal quotation omitted). As the

Cablevision court found, these factors are not "sufficiently proximate to the copying to

displace the customer as the person who 'makes' the copies" for liability purposes. Id.

Like Cablevision, Dish has no control over what programs Fox and the other networks

choose to make available during primetime. If Fox chooses to change its primetime line-

up on a particular night, Dish may allow or disallow the PTAT recording, but it cannot

control which programs will be broadcast. See id. at 132 (declining to find liability in

part because "Cablevision has no control over what programs are made available on

individual channels or when those programs will air, if at all"). Moreover, Dish records

the programs only if the user makes the initial decision to enable PTAT. Therefore, the

default settings do not support Fox's contention that Dish, rather than its users, makes the

copies.

Dish also decides the length of time each copy is available for viewing: PTAT

recordings are automatically deleted after expiration of a certain number of days, and a

user may neither delete nor preserve the original PTAT copy before that time. Minnick

Depo., 224:19-225:14; Minnick Decl., 24. In this respect, Dish exercises more control

over the copies than did the defendant in Cablevision, where the RS-DVR merely saved

the copies until they were deleted by the user or overwritten automatically to make room

for a later-recorded program. See Twentieth Century Fox Film Corp. v. Cablevision Sys.

Corp., 478 F. Supp. 2d 607, 612 (S.D.N.Y. 2007), reversed in part, vacated in part by

Cablevision, 536 F.3d at 140. Nevertheless, it is not clear to the Court that this control,

being exercised after the creation of the copies, is relevant to whether Dish causes the

copies to be made in the first place. In LoopNet, the Fourth Circuit found insignificant an

Internet service provider's ability to delete or "accept" copies of photographs uploaded to

a website before linking them to a corresponding page. See 373 F.3d at 547. Instead, the

court focused its analysis on the "volitional" conduct that caused the copying to be made;

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1 the defendant's subsequent control over the copy did not interrupt the initial chain of

2 causation. Id. The court noted that the many parties involved in the "storage and

3 transmission of data" on the Internet are not truly "'copying' as understood by the Act;

4 rather, they are conduits from or to would-be copiers and have no interest in the copy

5 itself.'" Id. at 551. A similar relationship appears to exist between Dish and its

6 subscribers: Dish exercises some control and discretion over the copies, but the copies

7 themselves are made by the users who choose to enable PTAT. Accordingly, the Court

8 finds that this factor also does not support Fox's contention that Dish makes the copies.

9 See id. at 555 (holding that "the automatic copying, storage, and transmission of

10 copyrighted materials, when instigated by others" does not constitute direct

11 infringement).

12 On the other hand, Dish decides when primetime recordings start and end each

13 night, and it maintains the authority to modify those times according to the particular

14 programs airing that night. Minnick Decl., ¶ 31. Additionally, the user cannot stop a

15 copy from being made during the copying process, but must wait until the recording ends

16 before disabling the link. In this regard, Dish exercises more control over the copying

17 process than did Cablevision over the RS-DVR. Cf. Cablevision, 536 F.3d at 132 (users

18 could request a recording of a program or programs airing at any time of day on any

19 station, provided that Cablevision had chosen to provide that station to subscribers).

20 Unlike the other indicia of control discussed above, these limitations on user choice

21 evince Dish's greater participation in the copying process. Still, the Court does not find

22 that this involvement is materially different from an Internet service provider that copies

23 a file in "automatic response to the user's request," LoopNet, 373 F.3d at 550, or a DVR

24 system that "automatically obeys commands" to copy programs selected by the user,

25 Cablevision, 536 F.3d at 131. Although Dish defines some of the parameters of copying

26 for time-shifting purposes, it is ultimately the user who causes the copy to be made by

27 enabling PTAT. Accordingly, while this factor undoubtedly brings Dish closer to the line

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than its predecessors in Cablevision and LoopNet, it does not push Dish into infringing

territory.

As the Cablevision court noted, "Sony warns us that 'the lines between direct

infringement, contributory infringement, and vicarious liability are not clearly drawn.'"

536 F.3d at 133 (quoting Sony, 464 U.S. at 435 n.17). It is clear that Dish exercises a

degree of discretion over the copying process beyond that which was present in

Cablevision. Nevertheless, at this stage of the proceedings, the Court is not satisfied that

PTAT has crossed over the line that leads to direct liability. Despite Dish's involvement

in the copying process, the fact remains that the user, not Dish, must take the initial step

of enabling PTAT after deciding that he or she wants to initiate the recording. The user,

then, and not Dish, is the "most significant and important cause" of the copy. Prosser

and Keeton on Torts § 42. Accordingly, the Court finds that Fox has not established a

likelihood of success on the merits of its claim that PTAT directly infringes on its

exclusive right to reproduction.

ii. The AutoHop Copies

Dish also makes QA copies of the primetime line-ups to ensure that AutoHop,

when enabled, functions properly on PTAT recordings. These copies are indisputably

initiated by Dish, but the parties dispute whether they are a "fair use" under 17 U.S.C.

§ 107 because they are "intermediate" to the user's ultimately fair time-shifting. See

Sega Enter. Ltd. v. Accolade, Inc., 977 F.2d 1510, 1518 (9th Cir. 1992) (finding that

intermediate copying of protected works not ultimately incorporated into an end product

may be infringing, but concluding that the intermediate copies at issue were a fair use)

(quoting Walker v. University Books, 602 F.2d 859, 863-64 (9th Cir. 1979)). The "fair

use" exception "permits courts to avoid rigid application of the copyright statute when,

on occasion, it would stifle the very creativity which that law is designed to foster."

Kelly, 336 F.3d at 817 (quoting Dr. Seuss Enters., L.P. v. Penguin Books USA, Inc., 109

F.3d 1394, 1399 (9th Cir. 1997)). Courts consider four factors in the "fair use" analysis:

(1) the purpose and character of the use; (2) the nature of the copyrighted work; (3) the

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1 amount and substantiality of the portion used in relation to the copyrighted work as a

2 whole; and (4) the effect of the use upon the potential market for or value of the

3 copyrighted work. 17 U.S.C. § 107.

4 First, Dish urges the Court to find that, under Sega and its progeny, the QA copies

5 are a fair use because they are ultimately used for noninfringing purposes. In Sega, the

6 court examined whether the unauthorized disassembly of a copyrighted computer

7 program "in order to gain an understanding of the unprotected functional elements of the

8 program" constituted a fair use. 977 F.2d at 1514. Sega owned the copyrights to its

9 "Genesis" video-game console and games that could be played on it. Id. Defendant,

10 Accolade, developed a process to render its own games compatible with the Genesis

11 console. Id. This process included "reverse engineer[ing]" of Sega's video game

12 programs to discover the compatibility requirements for the Genesis. Id. The reverse-

13 engineering process required a form of copying, called "disassembly," which Sega

14 contended was not a fair use. Id. at 1517.

15 Like the QA copies here, the disassembly copies were not used in the end product

16 or for any purpose beyond ascertaining the object code, which was not entitled to

17 copyright protection. See id. at 1526. The court noted, "[w]here there is good reason for

18 studying or examining the unprotected aspects of a copyrighted computer program,

19 disassembly for purposes of such study or examination constitutes a fair use." Id. at

20 1520. In that case, the "good reason" for the copying was to allow Accolade to create

21 unique works that could compete in the same market as Sega, and the court noted that

22 disassembly was "the only means of gaining access to [the] unprotected aspects of the

23 program." Id. at 1520, 1523. Central to the court's conclusion in Sega was that branding

24 disassembly an unfair use would have allowed Sega to monopolize the entire market for

25 works of the type created by Accolade. Id. at 1523-24 (noting that "an attempt to

26 monopolize the market by making it impossible for others to compete runs counter to the

27 statutory purpose of promoting creative expression and cannot constitute a strong

28 equitable basis for resisting the invocation of the fair use doctrine"). That Accolade

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copied the unprotected aspects for the purpose of gaining information to create a new,

competing product rather than to supplant the original work was a significant factor in

finding fair use. See also Sony Computer Entm't, Inc. v. Connectix Corp., 203 F.3d 596,

607 (9th Cir. 2000) (finding that disassembly copying was a fair use where employed to

create a virtual game console on which users could play the plaintiff's games because the

end-product was transformative and did not "merely supplant" the plaintiffs protected

work).

Here, Dish makes the QA copies for a purpose fundamentally different than did the

plaintiff in Sega. Dish makes copies of protected works and it does not do so in order to

create unique, transformative works that compete with the Fox Programs. Furthermore,

by restricting the use of its copyrighted works, Fox is not exercising an effective

monopoly over the television-program market." See Sega, 977 F.3d at 1523-24.

Therefore, the Court is not persuaded that Sega resolves the fair use inquiry. Accordingly

it will examine the four factors set forth in 17 U.S.C. § 107.

(1) Purpose and Character of the Use

First, although commercial use of the copyrighted material is not dispositive of the

fair use inquiry, it can counsel against a finding of fair use, particularly where the work is

not transformative. See Kelly, 336 F.3 at 818; see also Campbell v. Acuff-Rose Music,

Inc., 510 U.S. 569, 578-79, 114 S. Ct. 1164, 1177, 127 L. Ed. 500 (1994). Dish makes

the AutoHop QA copies to ensure that the marking announcement is correct so that

AutoHop accurately skips over commercials for PTAT viewers. While the copies

themselves are not sold or otherwise monetized, they are undoubtedly made for the

commercial purpose of providing a high-quality commercial skipping product that more

users will want to activate. Moreover, the copies are not transformative because they do

11 The Sega court also recognized the unique nature of object code in computer programming, noting, "[i]f disassembly of copyrighted object code is per se an unfair use, the owner of the copyright gains a de facto monopoly over the functional aspects of his work--aspects that were expressly denied copyright protection by Congress." 977 F.3d at 1526. These unique characteristics are not at play here.

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1 not alter their originals "with new expression, meaning, or message." Campbell, 510

2 U.S. at 579. The commercial purpose of the AutoHop copies, although not dispositive,

3 weighs against a finding of fair use.

4 (2) Nature of the Copyrighted Work

5 Second, "[w]orks that are creative in nature are closer to the core of intended

6 copyright protection than are more fact-based works." Napster, 239 F.3d at 1016. While

7 some of the programs recorded in the QA process may certainly be fact-based, the sample

8 registrations provided by Fox suggest that the programs, which include fictional works

9 like Glee and The Family Guy, are primarily creative works. See Brennan Decl., ¶ 3,

10 Exh. A. Thus, the creative nature of the copyrighted works entitles them to heightened

11 protection and also cuts against a finding of fair use. See Kelly, 336 F. 3d at 820.

12 (3) Amount and Substantiality of Use

13 Third, "copying an entire work" also militates against a finding of fair use. Kelly,

14 336 F.3d at 820. Where the ultimate use is very limited, however, the factor is given

15 little weight. See Sega, 977 F.2d at 1526-27 (citing Sony, 464 U.S. at 449-50). Here, the

16 QA copies duplicate the Fox Programs in their entirety; indeed, partial copies of the

17 primetime broadcast would do little to aid Dish in creating an accurate "marking"

18 announcement. On the other hand, the copies are used for the limited purpose of

19 ensuring that the marking data is correct. Only the marking announcement, and not the

20 copies themselves, are distributed to the users. Thus, while this factor also weighs

21 against Dish, it is of considerably less weight than the other factors due to the limited

22 nature of the ultimate use. See id.

23 (4) Effect of the Use on the Market

24 Finally, the fourth factor "requires courts to consider not only the extent of market

25 harm caused by the particular actions of the alleged infringer, but also 'whether

26 unrestricted and widespread conduct of the sort engaged in by the defendant . . . would

27 result in a substantially adverse impact on the potential market' for the original."

28 Campbell, 510 U.S. at 590 (citing 3 M. Nimmer & D. Nimmer, Nimmer on Copyright

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§ 13.05[A][4] (1993)); see also Monge v. Maya Magazines Inc., 688 F.3d 1164, 1182

(9th Cir. 2012) ("[T]o negate fair use one need only show that if the challenged use

should become widespread, it would adversely affect the potential market for the

copyrighted work."). The Supreme Court has called this factor "undoubtedly the most

important element of fair use." Harper & Row Publishers, Inc. v. Nation Enterprises,

471 U.S. 539, 566, 105 S. Ct. 2218, 2234, 85 L. Ed. 2d 588 (1985). In Hustler Magazine,

the Ninth Circuit found that this factor focuses on whether the infringing use "tends to

diminish or prejudice the potential sale of [the] work, tends to interfere with the

marketability of the work, or fulfills the demand for the original work." 796 F.2d at

1155-56 (internal citations and numbering omitted). Additionally, courts consider the

effect of the defendant's use on the owner's ability to enter into licensing agreements for

the use of the protected work. See Campbell, 510 U.S. at 592 (rejecting the argument that

parody causes cognizable harm to the market for the original work, but noting that "the

market for potential derivative uses includes . . . those that creators of original works

would in general develop or license others to develop"); see also Harper & Row

Publishers, Inc., 471 U.S. at 568 (noting that the fourth factor "must take account not

only of harm to the original but also of harm to the market for derivative works").

Here, the QA copies are used to perfect the functioning of AutoHop, a service that,

standing alone, does not infringe. The record shows, however, that a market exists for

the right to copy and use the Fox Programs: Fox licenses copies of its programs to

companies including Hulu, Netflix, iTunes, and Amazon to offer viewers the Fox

Programs in various formats. See Brennan Decl., ¶ 13. In fact, the record suggests that

Dish chose to offer AutoHop to its subscribers in order to compete with other providers

who pay for the rights to use copies of the Fox Programs through licensing agreements.

See Singer Decl., Exh. G (Joe Flint, Dish says Hulu is an issue too, Los Angeles Times,

May 24, 2012, http://www.latimes.com ("[T]he networks' growing willingness to offer

their content on . . . Hulu and iTunes . . . makes the programming that Dish is paying for

less valuable, Shull said, and that was one of the reasons that it pushed its AutoHop

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device.")); see also Notice of Lodging, Exh. 1 at 5:10 (Vivek Khemkha, Dish Vice

President of Product Management, describing the benefits of AutoHop in a promotional

spot stating, "I don't think you'd ever need Hulu Plus or Hulu after this") [Doc. # 421.12

Unlike these providers, however, Dish does not pay for the right to copy the Fox

Programs for any purpose. By making an unauthorized copy for which it has not paid

and using it for AutoHop, Dish harms Fox's opportunity to negotiate a value for those

copies and also inhibits Fox's ability to enter into similar licensing agreements with

others in the future by making the copies less valuable. Therefore, the Court finds that

the fourth factor also militates against finding that the QA copies constitute a "fair use"

under the Copyright Act.

Having considered the fair use factors, the Court finds that, on balance, the QA

copies do not constitute a fair use under the Copyright Act. Although they are

"intermediate" copies not ultimately used in any end product, they threaten to reduce the

value of the right to copy the Fox Programs and undermine Fox's relationships with

licensees who pay for that right. The fact that consumers ultimately use AutoHop in

conjunction with PTAT for private home use, a fair use under Sony, does not render the

intermediate copies themselves a fair use as well. See Los Angeles News Service v. Tullo,

973 F.2d 791, 797 (9th Cir. 1992) (emphasizing that the defendant's unauthorized

commercial copying was not necessarily a fair use merely because his clients used the

copies for "research, scholarship, and private study," which themselves are fair uses).

Therefore, the Court finds that Fox has shown a likelihood of success on the merits of its

12 Dish objects to these Exhibits as irrelevant, misleading, mischaracterizing the evidence, and hearsay. Neither quoted statement is hearsay as both are statements of an opposing party. Fed. R. Evid. 801(d)(2). The Court finds that the news article and videos themselves, while hearsay, are admissible for the limited purpose of showing that the topic itself—the potential effect of AutoHop on both Fox and Dish's relationships with Hulu and iTunes—has been discussed by Dish representatives in the media as a potential consequence of AutoHop. See Tieketmaster, 507 F. Supp. 2d at 1114-15 (considering newspaper articles in the context of a preliminary injunction).

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claim that, unlike the intermediate copies at issue in Sega, the QA copies are not a fair

use and are an infringement upon Fox's exclusive reproduction right.

b. The Distribution Right

Infringement of the distribution right requires "actual dissemination of a copy" by

sale or other transfer of ownership, or by rental, lease, or lending. Perfect 10 v.

Amazon.com, Inc., 508 F.3d at 1162 (internal citation omitted); 17 U.S.C. § 106(3). In

the electronic context, copies may be distributed electronically. See N.Y. Times Co. v.

Tasini, 533 U.S. 483, 498, 121 S. Ct. 2381, 2390, 150 L. Ed. 2d 500 (2001). Unless a

copy "changes hands" in one of the designated ways, a distribution has not taken place.

Atlantic Recording Corp. v. Howell, 554 F. Supp. 2d 976, 983 (D. Ariz. 2008).

Here, although Dish is substantially involved in the PTAT copying that takes place

on users' individual Hoppers, it does not appear that any actual copies of the copyrighted

works "changes hands." Atlantic Recording Corp., 554 F. Supp. 2d at 983. A PTAT-

enabled Hopper records primetime programming locally and, at most, that local copy is

disseminated within a single household through the use of Joeys. See id. (noting that the

infringer must distribute an unauthorized copy to a member of the public). The only data

that changes hands in connection with PTAT and AutoHop is the marking announcement,

which instructs AutoHop when to begin skipping the commercial breaks. According to

Minnick, this announcement does not contain any PTAT recording, but it merely tells the

Hopper when the commercials, which are not alleged to be protected works, begin and

end. Minnick Depo., 24:10-14. Therefore, because PTAT and AutoHop do not involve

any actual distribution of unauthorized copies, the Court finds that Fox has not

established a likelihood of success on the merits of its distribution claim.

3. Breach of Contract Claims

Fox also contends that it is likely to succeed on the merits of its claims against

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Dish for breach of contract.13 The 2002 RTC Agreement grants Dish a nonexclusive

right to retransmit the Fox broadcast while prohibiting Dish from copying or distributing

the copyrighted works, Shull Decl., ¶ 11, Exh. 3 at ¶ 3(a). The 2010 Letter Agreement

requires Dish to disable fast-forward functioning during the playback of certain VOD

features. Id., 1114, Exh. 5, Attach. A at ¶ 9.14

A written contract must be read and interpreted as a whole.15 See Westmoreland

Coal Co. v. Entech, Inc., 100 N.Y.2d 352, 357 (N.Y. 2003). A contract must be

construed to effectuate the parties' intent, MBIA Ins. Corp. v. Patriarch Partners VIII,

L.L.C., 842 F. Supp. 2d 682, 704 (S.D.N.Y. 2012), but the Court looks to the "objective

examination of the reasonable meaning of the text" rather than rely on a party's

"subjective expectations or assumptions," Sea Shipping Inc. v. Half Moon Shipping,

L.L.C., 848 F. Supp. 2d 448, 457 (S.D.N.Y. 2012). Additionally, contracts should be

interpreted according to "reasonable expectation and purpose of the ordinary

13 The Court notes that, because contract breach is generally compensable by money damages, a preliminary injunction will rarely issue on the basis of an alleged breach of contract absent evidence of intangible injuries that may stem from such breach. See Rent-A-Center, Inc. v. Canyon Television and Appliance Rental, Inc., 944 F.2d 597, 603 (9th Cir. 1991) (noting that "economic injury alone does not support a finding of irreparable harm, because such injury can be remedied by a damage award," but intangible injuries that may also arise out of a contractual breach may constitute irreparable harm). With that stricture in mind, the Court will examine Fox's likelihood of success on the breach of contract claims.

14 Fox also alleges that Dish's conduct violates the anti-circumvention provision of the 2010 Letter Agreement, which provides that neither party shall "take any action whatsoever intended to frustrate or circumvent, or attempt to frustrate or circumvent" the parties' contractual obligations. Shull Decl., `1[ 14, Exh. 5, Attach. A at ¶ 5. The parties devote minimal argument to this claim in their briefs and the record lacks substantial evidence addressing this particular provision. In any event, on the current record, Fox has failed to show, even if serious questions exist as to Dish's potential breach of this clause, that any irreparable harm would result. See Pyro Speculators North, Inc. v Souza, 861 F. Supp. 2d 1079, 1092 (E.D. Cal. 2012) (economic injury alone will not support a finding of irreparable harm).

15 According to Clause 30 of the parties' 2004 Agreement, the parties' contractual relationship is governed by New York law. See Shull Decl., Exh. 4, ¶ 30.

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1 business[person] when making an ordinary business contract." Uribe v. Merchants Bank

2 of N.Y., 91 N.Y.S.2d 393, 396 (N.Y. 1998).

3 a. The RTC Agreement

4 Fox asserts that PTAT violates two provisions of the RTC Agreement. Shull

5 Decl., Exh 3, ¶ 3(d) ("[Dish] shall have no right to distribute all or any portion of the

6 programming . . . on an interactive, time-delayed, [VOD] or similar basis; provided that

7 Fox acknowledges that the foregoing shall not restrict [Dish's] practice of connecting its

8 Subscribers' video replay equipment . . . ."); ¶ 9(a) ("[Dish] shall not, for pay or

9 otherwise, record, copy, duplicate and/or authorize the recording, copying, duplication

10 (other than by consumers for private home use) . . . of any portion of' the broadcast.). As

11 discussed above, see § III.A.2.b., supra, Fox has not established that Dish engages in any

12 distribution because the PTAT copies are made by users, remain in private homes, and do

13 not change hands. Nevertheless, to the extent that both of these provisions may apply to

14 PTAT, it seems clear to the Court that this language invokes the long-recognized rule, set

15 forth in Sony, 464 U.S. at 454-55, that in-home copying by private consumers for the

16 purpose of "time-shifting" is a fair use under the Copyright Act. As discussed above,

17 although Dish exercises some discretion over the PTAT recording feature, it is ultimately

18 the user who causes each copy to be made. For the same reasons that Dish does not make

19 the PTAT copies under copyright standards, the Court finds that Dish does not make the

20 copies within the meaning of sections 3(d) and 9(a) of the RTA Agreement. See Shull

21 Decl., Exh. 3, ¶J 3(d), 9(a). Although PTAT makes copying for private home use faster,

22 easier, and more expansive, it is ultimately user-initiated copying that is permissible

23 under the contract.

24 On the other hand, as discussed above, the AutoHop QA copies unquestionably do

25 constitute copies—made by Dish. The fact that the copies are not used for any purpose

26 other than quality assurance does not subject them to any exception in the RTC

27 Agreement, because the Agreement prohibits copying "for pay or otherwise." Shull

28 Decl., Exh. 3, ¶ 9(a). A plain reading of this section in the context of the contract as a

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1 whole suggests that the QA copies constitute a breach of the contract by the plain fact

2 that they are Dish-initiated copies. See Brad H. v. City of New York, 17 N.Y.3d 180, 185

3 (N.Y. 2011) ("A written contract that is clear, complete and subject to only one

4 reasonable interpretation must be enforced according to the plain meaning of the

5 language chosen by the contracting parties."). Thus, the Court finds that Fox has

6 established a likelihood of success on the merits that the AutoHop QA copies violate the

7 RTC Agreement.

8 b. The 2010 Letter Agreement

9 Additionally, the 2010 Letter Agreement lists several types of VOD services that

10 correspond to several Fox stations: FX, National Geographic Channel (NGC), National

11 Geographic en Espaliol (NGE), and Fox VOD. Shull Decl., ¶ 14, Exh. 5, Attach. A at

12 ¶ 9. The sub-clause corresponding to each station grants Dish a license to provide VOD

13 content at no additional fee or charge, subject to the limitation that "Dish will disable

14 fast-forward functionality during all advertisements." Id. This limitation applies to the

15 VOD license for all four stations contemplated in the VOD section. Id.

16 AutoHop indisputably constitutes ad-skipping. In fact, evidence in the record

17 shows that Dish's marketing campaign highlights the Hopper's ad-skipping abilities to

18 distinguish it from other STBs. See Singer Decl., ¶ 42, Exh. J (noting Dish's AutoHop

19 tagline, "Watch shows, not commercials" ).'6 Dish maintains that AutoHop does not

20 breach the contract for two reasons. First, Dish argues that PTAT is not VOD but rather

21 is akin to traditional DVR, and therefore AutoHop is permitted under the contract much

22 like fast-forwarding and 30-second skip in traditional user-initiated DVR recordings. See

23 Shull Decl., Exh 3, ¶¶ 3(d), 9(a) (allowing private home recording without restriction on

24 fast-forward functioning). Second, Dish submits that the VOD provision was an option

25 of which Dish was unable to take advantage due to technological and logistical

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28 16 See Footnote 13, supra.

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limitations, see Shull Decl., ¶ 23, and therefore the restriction on fast-forwarding does not

apply to PTAT.

If PTAT is, as Fox asserts, a VOD offering, then Dish's breach seems clear: every

mention of VOD content involving the Fox Programs in the Agreement includes the

express prohibition on fast-forwarding through commercials. Shull Decl., ¶ 14, Exh. 5,

Attach. A at ¶ 9; see also Uribe v. Merchants Bank of N.Y., 91 N.Y.S.2d 393, 396 (1998)

(contracts should be interpreted according to the "reasonable expectation and purpose of

the ordinary business[person] when making an ordinary business contract") (internal

quotation omitted). The parties devote much argument to the proper definition of VOD.

According to Richard Rapp, an economist at NERA Economic Consulting, VOD is

a licensed service that allows viewers to select and watch video programs

whenever they request them. It is a service where the content is not

broadcast, but stored in a library, which users can access on-demand.

Typical VOD content offerings include recently aired television programs

(as in catch-up TV), popular series, selected categories of thematic

programming (e.g. music, children's programs), and movies.

Declaration of Richard Rapp, ¶ 94 [Doc. # 641. Brennan describes the VOD that Fox

separately licenses to MVPD service providers like Dish as "a library of previously-aired

television programs for immediate, 'on demand' viewing on standard television . .

distributed after a short-window following a program's original air date and time . . . ."

Brennan Decl., ¶ 14(a). Other definitions in the record suggest that the essence of VOD

is that its content is controlled by the provider, not the user: the provider selects what

programs will be available, when, and for how long. See, e.g., Khemkha Decl., ¶ 12

(offering three descriptions of VOD, all of which involve content offered by the

supplier).

The parties' dispute over the VOD provision is especially challenging because

PTAT is, in some ways, a hybrid of DVR and VOD likely not contemplated by either

party when the 2010 Agreement was drafted. As the Court concluded in its copyright

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1 analysis, however, at its core, PTAT is little more than a faster, more streamlined way for

2 users to engage in the time-shifting privileges that they have enjoyed since the days of the

3 Betamax.'7 As discussed above, Dish does not decide what programs are available in the

4 PTAT "library"; rather, if the user chooses to enable PTAT, then the recording includes

5 whatever happened to air during that particular primetime window. Unlike VOD, a user

6 cannot decide on Wednesday that he or she wants to view a program that aired on

7 Monday; if the user did not enable PTAT for that night, the recording does not exist. The

8 PTAT recording also differs from VOD insofar as it resides on the user's local DVR and

9 is not transmitted from a remote supplier's library of collected works. Accordingly, the

10 Court finds that the current record does not support a likelihood of success on the merits

11 of Fox's claim that AutoHop breaches the 2010 Letter Agreement. Because none of the

12 parties' agreements purport to limit fast-forwarding on DVR recordings, and because the

13 Court has found that PTAT is more akin to DVR than to VOD, the Court cannot find that

14 AutoHop violates the VOD provisions of the 2010 Agreement. Westmoreland Coal Co.

15 v. Entech, Inc., 100 N.Y.2d at 357 ("A written contract will be read as a whole, and every

16 part will be interpreted with reference to the whole.") (internal quotation omitted).

17 B. Fox Has Not Established That It Will Suffer Irreparable Harm As a Result of

18 the QA Copies

19 Although historically a showing of a reasonable likelihood of success on a

20 copyright infringement claim raised a presumption of irreparable harm, that presumption

21 no longer exists. See eBay Inc. v. MercExchange, LLC, 547 U.S. 388, 392-93, 547 U.S.

22 388, 126 S. Ct. 1837, 164 L. Ed. 2d 641 (2006) (rejecting the rule that "an injunction

23 automatically follows a determination that a copyright has been infringed" and finding

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26 17 That former Dish attorney, Max Gratton, represented PTAT as VOD in Dish's trademark "Intent to Use" application on February 4, 2011, does not alter the Court's finding. See Singer Decl.,

27 ¶ 28, Exh. F at 207 [Doc. # 41-2]. As the above analysis demonstrates, the exact meaning of the term "VOD" is subject to reasonable dispute. The Court's conclusion in this regard is based on PTAT's

28 actual characteristics and functionality, not on how PTAT has been described in the media or otherwise.

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that the circuit court's application of that "categorical rule" to grant an injunction was

improper); see also Winter, 555 U.S. at 22 (emphasizing that a party seeking a

preliminary injunction must demonstrate that irreparable injury is likely); Flexible

Lifeline Sys., Inc. v. Precision Lift, Inc., 654 F.3d 989, 995-996 (9th Cir. 2011)

("presuming irreparable harm in a copyright infringement case is inconsistent with, and

disapproved by, the Supreme Court's opinions in eBay and Winter"). Therefore, Fox

must make an independent showing that it is likely to suffer irreparable harm as a result

of the infringement via the QA copies if an injunction does not issue. See Flexible

Lifeline, 654 F.3d at 998.

Fox has demonstrated a likelihood of success on the merits of its claims that

AutoHop's QA copies infringe its exclusive reproduction right and breach the anti-

copying terms of the RTC Agreement. Importantly, as discussed above, neither the

marking announcements nor the ad-skipping effect of AutoHop implicates any copyright

interest or breach of contract on the current record.18 Therefore, Fox must establish that it

faces a likelihood of irreparable harm if Dish is not enjoined from making and using the

QA copies.

As discussed above, see § III.A.2.b.ii.d., supra, the record shows that the QA

copies have an inherent value for which other providers pay through licensing agreements

with Fox. See Singer Decl., ¶ 34, Exh. G ("[T]he networks' growing willingness to offer

their content on . . . Hulu and iTunes . . . makes the programming that Dish is paying for

less valuable, Shull said, and that was one of the reasons that it pushed its AutoHop

device."). By making the copies without such a licensing agreement, Dish has reserved

for itself the benefits that flow from the copies, in this case, the functioning of AutoHop,

18 Fox does not argue that ad-skipping, standing alone, constitutes copyright infringement, and the Court cannot find any case that has addressed such a technology. Cf. Paramount Pictures Corp. v. ReplayTV, 298 F. Supp. 2d 921, 927 (C.D. Cal 2004) (dismissing declaratory suit by private users of DVR with commercial-skipping technology after copyright owners signed a covenant not to sue on that basis). Moreover, the Court is persuaded that, to the extent ad-skipping may implicate any copyright concerns, Dish is not liable for that potential infringement under Sony, 544 U.S. at 455-56.

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while depriving Fox of its ability to negotiate terms and cost of use in a licensing

agreement for those copies. See Campbell, 510 U.S. at 592 (explaining that the relevant

market for potential derivative uses "includes only those that creators of original works

would in general develop or license others to develop") (emphasis added). Accordingly,

the Court finds that, on the current record, Dish's impermissible copying of the Fox

Programs causes Fox some degree of harm.

An injunction will not issue, however, unless the record establishes that this harm

is irreparable. See Perfect 10, Inc. v. Amazon.com, 508 F.3d at 1158. Economic injury

alone will not support a finding of irreparable harm because it can generally be remedied

by money damages. See Pyro Speculators North, Inc. v Souza, 861 F. Supp. 2d 1079,

1092 (E.D. Cal, 2012) (citing Rent-A-Center, Inc., 944 F.2d at 603). Although

"intangible injuries, such as damages to ongoing recruitment efforts and goodwill, qualify

as irreparable harm," id, the current record does not support a finding of such injuries.

Instead, the record suggests that the extent of harm caused by the QA copies is calculable

in money damages. The fact that Fox has licensing agreements with other companies

shows that copies of the Fox Programs have a market value that other companies already

pay in exchange for the right to use the copies. Although Fox has submitted evidence

that some irreparable harms, such as loss of control over its copyrighted works and loss

of advertising revenue, may stern from the ad-skipping use to which the QA copies are

put, the record does not show that those harms flow from the QA copies themselves.

MySpace, Inc. v. Wallace, 498 F. Supp. 2d 1293, 1306 n.3 (C.D. Cal. 2007) (noting that

the irreparable harm inquiry is dependent on "the harm suffered as a result of the

defendant's allegedly unlawful actions"). Rather, if those harms were to materialize, they

would be a result of the ad-skipping itself, which does not constitute any copyright or

contract breach. Because the alleged harms that Fox will suffer as a result of the QA

copies is essentially contractual in nature, the Court finds that the injury is compensable

with money damages and does not support a finding of irreparable harm. See Pyro

Speculators, 861 F. Supp. 2d at 1092.

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1 Having determined that Fox has failed to establish that it is likely to suffer

2 irreparable harm in the absence of an injunction, the Court need not determine whether

3 the balance of hardships tips in Fox's favor or whether an injunction is in the public

4 interest. See Winter, 55 U.S. at 20.

5 IV.

6 CONCLUSION

7 In light of the foregoing, Fox's Motion for Preliminary Injunction is DENIED.

8 Given that this Order quotes from the parties' confidential agreements, which have been

9 filed under seal, within five days from the date of this Order, the parties will meet and

10 confer regarding which portions of this Order, if any, they propose to be redacted such

11 that the Court may issue a redacted version of the Order. The parties shall file a joint

12 report with the Court by no later than November 12, 2012 regarding the proposed

13 redacted version of the Order.

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15 IT IS SO ORDERED.

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17 DATED: November 7, 2012

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UNITED STATES DISTRICT JUDGE

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fox v. dish networks - santa clara university

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